Sony’s the frontrunner for local mortgage market

Japanese-owned Sony Bank has emerged as the frontrunner to set up an online bank in Australia to compete aggressively against the big four lenders in mortgages.

Market sources said Japan’s three mega banks had undertaken preliminary analysis of expanding into Australia, but it is understood the online banking unit of the Japanese multinational conglomerate, Sony, is the most advanced in plans.

A Sony Bank spokeswoman confirmed yesterday it had received approval from the Australian Prudential Regulation Authority for its Sydney representative office to undertake a feasibility study into setting up an online operation.

It already operates a low-cost branchless bank with cheap interest rates and fees in Japan.

The Australian Financial Review reported yesterday that a Japanese bank was drawing up plans to expand to Australia and draw on its huge deposit pools at home to access cheap funding and undercut local banks on home loan interest rates via an online model.

Mark Bouris, whose non-bank lender Wizard Home Loans business helped smash the big four banks’ home lending oligopoly in the 1990s, said yesterday that bank profit margins and low mortgage arrears made Australia attractive to foreign banks.

“This market is open for a new competitor.”

“The dynamics exist for a good, strong Japanese bank which has a good deposit base to diversify their asset base,” Mr Bouris said.

Australia’s big banks were the most profitable out of 13 developed countries last year, the Bank for International Settlements says.

The big four banks are writing about 90 per cent of new mortgages and control about 83 per cent of home loans in Australia.

Equity analysts at Nomura believe deposit-rich Japanese banks are likely to continue to expand overseas because net interest margins are higher, allowing them to generate materially higher levels of return.

“Overseas markets continue to offer a better growth outlook than the Japanese market, where the lending market has been contracting for many years as corporations are not investing in Japan in light of its stalled population growth,” Nomura analysts said in client note.

“We also believe Japanese banks’ solid balance sheets, especially their large core deposits (which are supported by Japanese retail clients), will give them a competitive advantage as they develop their overseas business.”

Japan’s three mega-banks – Bank of Tokyo-Mitsubishi UFJ, Sumitomo Mitsui Financial Group and the Mizuho Group – have steadily increased their lending to companies in Australia, but have yet to move into retail banking. Any such move would require the approval of regulators.

Treasurer Wayne Swan’s spokesman said the government had a strong record of supporting competition and new lenders boosting competition would be welcome, provided they met strict regulatory criteria.

Mike Pratt, a former Westpac executive who recently returned from working in Asia at Standard Chartered, said there would be challenges for a new entrant from overseas.

This included product distribution, which would possibly require buying an existing brand with systems and processes in place.

But he said people generally preferred face-to-face contact on big financial decisions such as mortgages. “Our experience is while customers are happy to make inquiries online and do all the research, when it comes to putting pen to paper for an application, they really generally want to do it with someone helping them,” he said.